Serving More Segments and Offeig More Products

Abstract

A profit-enhancing strategy for hotels must begin by examining both the customer mix and the product-and-service mix of a particular hotel. Looking at the variety of products offered and the customers served in combination with historical information on profits and losses can help a manager understand more fully the connection among customers, products and services, revenues, costs, and profits. This study shows that properties with great product-and-service variety and serving a large number of customer segments had higher undistributed operating costs per available room than properties offering less variety and serving fewer market groups. At the same time, the greater the variety of products and services offered, the higher a hotel's departmental profit per available room and the higher its gross operating profit (GOP). That is, efforts to increase product-and-service variety increase costs, but those costs are fully offset by increases in GOP. Therefore, a hotel that expands its variety of products and services not only achieves an increase in revenues, but also has higher profitability than when it offers fewer products and services. In contrast, hotels that increase the variety of customer segments they serve did not experience increases in departmental profit and GOP. Thus, a hotel serving a large variety of customer segments may not recoup the costs of implementing that strategy.